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What is community rating in healthcare?

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The lowdown...
  • Community rating treats each member of a covered class equally as to price and terms of coverage.
  • The Affordable Care Act uses a modified form of community rating.
  • Community rating does not rely on individual traits such as medical history.
  • The Affordable Care Act banned the use of individual rating and requires acceptance for every qualified applicant.
Community rating is an essential element of Obamacare; community rating puts every qualified applicant on an equal footing as to terms, coverage, and price. Community rating excludes the use of individual traits, medical histories, and physical or mental conditions. The Obamacare Marketplace offers plans with community rating. Comparison shopping is an ideal way to select plans that meet individual or family needs.

Learn more about health insurance below and make sure to use our free insurance comparison tool above! 

The Individual Mandate

AdobeStock_119261905-1600x1600The individual mandate requires every eligible resident to get and keep qualified health insurance coverage. Those that fail to comply could face a tax penalty for each month of no insurance. When requiring every eligible person to get insurance, the law must also require every insurer to accept applicants.

The law limited insurance company discretion on acceptance, rating, and terms. Obamacare required community rating and universal acceptance of qualified applicants.

Obamacare Guaranteed Issue

Guaranteed issue means that every qualified applicant must get acceptance for insurance coverage. Obamacare requires a minimum income and nothing more. Insurers must accept every applicant with the ability to pay. With few limited exceptions, insurers must offer identical terms and prices to all subscribers of their plans

Open Enrollment Period

adobestock_79189150-1600x1600Beginning in November and running through the following January, Obamacare provides an annual Open Enrollment Period for getting qualified health insurance. Qualified health insurance complies with the law and avoids the tax penalty. Applicants get community rating during open enrollment with the exception of the ability to pay.

Obamacare Marketplace and state exchanges require a minimum level of annual family income to qualify for coverage and financial assistance. Those that do not qualify for Obamacare can apply for Medicaid Expansion benefits, Medicaid, or the CHIP. Medicaid has an upper-income limit but treats all applicants on the same terms; it is similar to community rating.

What is Qualified Health Insurance?

The Obamacare individual mandate imposes a tax penalty for each month without qualified health insurance. The law requires every insurer to report qualified coverage for each month of the calendar year to the IRS. The below-listed items describe qualified health insurance.

  • Minimum essential coverage– Qualified plans must cover hospital and medical care sufficient to manage a severe illness in the current medical marketplace. This level of protection includes major medical coverage of the quality found in VA, Medicare, COBRA, employer-sponsored plans, and public employee plans.
  • Minimum actuarial value– Qualified plans cover a minimum of 60 percent of the costs of covered essential benefits with insurance cost sharing payments.
  • Essential health benefits– Qualified health plans must have the ten essential health benefits including no cost prevention and wellness services.
  • Limits on costs and expenses– Qualified plans must have limits on deductibles and out-of-pocket expenses for in-network services and benefits.

Pre-Existing Conditions

AdobeStock_60807769-1600x1600Community rating is the opposite of pre-existing conditions standard for rating applicants. Before Obamacare, health insurers used pre-existing conditions to rate applicants for insurance. Insurers used this device liberally in the individual and family market. Most pre-existing conditions were disqualifying. Typical examples included prior pregnancy, high blood pressure, and obesity.

Medical underwriting

Prior to the Affordable Care Act, insurance companies conducted medical underwriting for applicants. Underwriters investigated applicants medical and social history to determine their insurance risk. Obamacare used modified community rating and banned the practice of medical underwriting for health insurance.

Community Rating and Obamacare

The ACA banned the use of medical underwriting and pre-existing conditions in insurance applications. Insurance companies must accept applicants that have the ability to pay. Once accepted, insurers must treat each member equally as to terms, price, and conditions. Insurers can charge higher prices only within the limited exceptions to community rating.

Exceptions to Obamacare Community Rating

adobestock_111578837-1600x1600Community rating does not use individual traits to set insurance premiums. Obamacare uses a modified form of community rating that allows four limited exceptions. The law uses four types of plan and insurers can charge more for plans with greater coverage. Within each class of subscribers, the law requires community rating.

– 1. The Age Exception

Studies showed that older people used a significantly larger amount of medical services than younger population groups. prior to the Affordable Care Act, insurers routinely charged five times the premium for older persons than the youngest in the insured group. Obamacare limits the maximum increase for age to three times the amount charged to the youngest member.

– 2. The Location factor in Community Rating

Location, and particularly rural locations can affect the price of medical care. Insurers must fix prices and recruit networks before Open Enrollment. The time and location affect the market for medical services.

– 3. Size of family

Family size matters to insurers and estimated costs because the range of ages and status is wide and unpredictable. The law authorizes variations from the rates insurers charge to individuals when covering a family unit. The range of possibilities includes maternity, birth, newborns to the oldest members.

– 4. Tobacco Usage Charges

Insurers can charge higher premiums to cover tobacco users.Obamacare emphasizes prevention and reduction of severe disease by early detection. Tobacco usage contributes substantially to avoidable illness and death, and it has swelled the national health costs. Obamacare permits insurers to charge smokers and tobacco users higher premiums than non-tobacco users. The law limits the added charges to one and one-half the amount charged to non-smokers. The law provides for reduction of fees after completion of smoking cessation.

Obamacare permits insurers to charge smokers and tobacco users higher premiums than non-tobacco users. The law limits the added charges to one and one-half the amount charged to non-smokers. The law provides for reduction of fees after completion of smoking cessation.

Medigap Community Rating

Medigap or Medicare Supplement is a guaranteed issue insurance for those with both Medicare Part A- Hospital Care and Medicare Part B- Medical Insurance. The guarantee issue period runs for six months after the applicant has both Medicare A and B. The rules require insurers to accept all applicants and to apply community rating to each applicant.

Medigap is Vital Coverage

Medicare Supplement is an important part of Medicare financial protection. This type of insurance covered the 20 percent gap between allowed costs and costs and billed Medicare Part – B benefits. Without Medigap protection, the consumer must pay 20 percent on every Medicare Part-B benefit.

Types of Rating in Medicare Supplement

AdobeStock_86339286-1600x1600Ratings can determine the immediate and long-term costs of insurance protection. Medigap coverage depends on the type of rating the insurer uses. In guaranteed issue situations, the insurer must use community rating.

– Attained-Age Rated Premiums

Attained age is the age of the applicant at the time the insurer sets the premium. This figure will always be the applicant’s current age. A premium will rise as the applicant renews the policy because the current age will always be older. For example, a policy charges $100 at age sixty-five and $150 at age 70. The attained age is the standard for setting the price.

– Issue-Age Rated Premiums

The insurers set the issue age premium price for the age at the time of issue. The price will not rise because the policyholder gets older. It can rise due to other factors such as inflation or cost of living. In this method, a person that signs up at age 72 pays more than someone that signed up at age 65.

– Community Rated Premiums

Every applicant receives the same price and terms without regard to age. In guarantee issue situations, insurers cannot discriminate on the basis of medical underwriting or pre-existing conditions. Prices may rise but not due to age or condition.

What is Community Rating in Healthcare?

Community rating treats every member of a plan on equal terms. It offers the same coverage terms and price to each member. Community rating is the opposite of pre-existing conditions and medical underwriting which use individual traits to determine rating, acceptance, price, and terms. Obamacare uses a modified form of community rating with limited exceptions.

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